Understanding Tax Laws
Do you find that you’d rather pull your hair out as opposed to read about income tax regulations? If that’s the case, you aren’t alone. The tax laws and regulations which have remained exactly the same for a long time are hard enough to understand, but once they add the new laws that appear every year, it can be downright impossible for you to grasp the laws not to mention how they apply to you.
If you choose to complete your taxes by yourself, be sure to understand some basic laws, but get help if you become stuck or you could possibly risk an audit.
Income tax returns make up the largest number of returns in the United States, followed by corporation income tax and employment tax returns. While the law in IRS publications states that such payment of tax is voluntary, the failure to file a tax return can lead to criminal penalties that may include fines and imprisonment not to mention civil penalties. Thus, the requirement to pay taxes is just not voluntary; rather it really is imposed upon all obligated to do so. Once the tax return is filed, payment is required at the fixed time and place.
Americans claim more than $1 trillion in deductions in their income tax returns every year. And millions more claim standard deductions that amount to half of that in addition. But that’s not nearly enough for the IRS. It reports that of all the silly, avoidable mistakes we make on our tax returns, the ones we should pay special attention to, this year, have to do with not putting down enough allowable deductions. For example, if you just made it to 65, your prize is that you get to claim a larger standard deduction than the rest of us. Of course, paying taxes is good for the country. It means more roads and more schools. But what living, breathing human would want to be in hock to the IRS for any more than he or she absolutely had to? So what are the income tax deductions that we all insist on sparing the IRS on, most of the time?
If you are working on your taxes alone and you have deductions, credits, and tons of assets to claim, you can run into some serious problems if you do not understand the latest income tax laws. Some make the mistake of assuming that the laws are the same from year to year. This is almost never the case. You either have to look up and understand all of the new tax laws, or you have to give up and ask someone else to do your taxes for you. It can be hard to hand it over when you want to save money, but anything is better than an audit. Even if you did nothing wrong, the audit itself is not going to be fun.
Do tips, wages and other compensation received for personal services amount to income and thus require that the income tax returns reflect such compensation? Are these ‘time reimbursement transactions’ subject to tax laws? Any income, regardless of the source, unless it can be established specifically to be excluded or exempted, is construed to be ‘gross income’ and thus require that income tax returns reflect it. This means that salaries, wages and any other economic benefit received from services performed or to be performed in the future are liable to taxation.
Of course everyone knows about deductible contributions to charity; but how about the ‘charitable work you did, answering a call for jury duty? Well, you get paid a salary, but the pay you get at your day job, your boss will often have you give back. How do you tell the IRS not to charge you for that one? On line 36 on the form is where.
There is some middle ground if you do not have the time to understand the new income tax laws each year but you have very complicated taxes that you want to do on your own. You can get income tax software from a few different companies that can help you do your taxes without making a mistake if you do not understand or know a new law. As long as the software is current for the right filing year, you just have to enter the correct information and your taxes are done for you. They software checks your work and even points out possible problems. You have a pay a little, but you will find it to be much less than going to a professional in person.
